New Zealand is a small group of islands in the South Pacific. Head of State is nominally the Queen of England. The Government is democratically elected every three years.

Geography, Climate and Population

The country lies between latitudes 34° and 48° south, and consists of two main islands extending 1,600 km from north to south, and 250 km wide. Lying on the edge of two continental plates means there is considerable tectonic and volcanic activity. Total land area is 27 million hectares.

Climate ranges from sub-tropical in the north to sub-Antarctic in the south. The prevailing westerly winds give rise to a rainfall gradient from west to east. Rainfall is generally between 600 - 2,500 mm per year, spread throughout the year but peaking in winter (May to August).

Total population is 3.6 million (1996 Census). Doubling time for the population is estimated to be about 75 years and is projected to be 5.4 million in 2010. In general the majority of people live in urban centres and enjoy a high standard of living.

Economy

The New Zealand economy has in recent years changed from being one of the most regulated in the world, to being one of the most deregulated. Prior to 1984 when the reforms began, there had been a long period of deterioration in wealth relative to other countries.

The period from 1984 to the present saw a massive restructuring, but it was not until 1993 that the benefits began to appear. Real GDP growth rose to 6.2% in 1995, and unemployment dropped from over 10% at the beginning of the decade to 6.0%. Inflation has stabilised between 1% and 3%, and the value of the New Zealand dollar has risen markedly.

Total exports in 1995 were US$14 billion, GDP per capita in 1995 was $US15,180, with growth having slowed in the latest period but projected to continue increasing at about 3.5% per year.

The major components of the country's export earnings are:

Industry

% Total Exports

Dairy Products

14

Forest Products

13

Meat

13

Wool

5

Forestry has recently (1996) become the second largest export earner, and is likely to become the largest within a decade.

Forests and their History

Forests in New Zealand are best described in two groups - natural forest, and planted forest. Natural forest covers 6.4 million hectares (24% of the land area), and planted forest covers 1.5 million hectares (5% of land area). A further 10% of the land area is in other forms of indigenous vegetation including regenerating forest (scrubland).

Planted forests provide 99% of all roundwood produced annually. These plantations are predominantly fast growing, introduced softwood species, with 90% being radiata pine. There is however an increasing interest by some forest growers in the development of hardwood plantations.

Natural forests owned by the State are largely protected from timber production with limited small-scale production allowed from privately owned natural forests, provided the production is carried out in a sustainable manner and has the required permits from the government.

Within New Zealand, neither the indigenous people (Maori) nor more recent settlers rely on the forest for their supplies of food and fuel, apart from some home heating and the use of residues in industrial processes. This results in almost all timber removals being destined for industrial use.

Prior to human arrival in New Zealand (circa 900-1300 AD), the country is estimated to have had 80% forest cover. Only those areas higher than the timberline, too wet or infertile, and those areas affected by a recent volcanism did not support a forest vegetation.

Polynesian immigrants (Maori) who arrived about 1,000 years ago were responsible for a significant decline in the forested area, especially in the drier eastern regions. Most destruction was by way of uncontrolled fires. The Maori were generally hunter/gatherer people rather than agriculturalists. Thus forest destruction was not to facilitate agriculture.

European discovery was in 1769 (Cook), and settlement of shore areas started by about 1800. More determined settlement commenced some 40 years later.

The European settlers pursued an aggressive policy of forest removal to facilitate agricultural expansion. Harvesting of timber was peripheral to the desire to clear land for agriculture.

Forest destruction by Polynesians had reduced the forest cover from 80% to 50% of land area by about 1840. Subsequent forest removal (largely by Europeans, but also some further by Maori) has reduced forest cover to about 24% of land area.

Until 1985, forest removal was encouraged, and in general subsidised by central government.

In the early part of the 20th Century, there existed in some quarters increasing recognition of the inability of indigenous forests to supply the country's future timber needs. This resulted in large scale planting of forests of exotic species, initially by the government, and followed by the private sector.

The government encouraged the private sector to plant trees through various incentives, while at the same time continuing to afforest large areas itself. Ironically, some of the incentives paid by government were to clear natural forest so that it could be replaced by planted forests of introduced species.

The development of these planted forests of introduced tree species has put New Zealand in an almost unique position in terms of wood production. The extent of planted forests has permitted a dichotomy of management regimes to develop to the point where natural forests are almost entirely protected from both timber production and clearance, and planted forests are managed principally for wood fibre production. With planted forests providing almost all domestic forest products requirements, the rising levels of harvest have created a substantial exportable surplus.

Current Situation

Key changes

A significant change in government policy in 1985 was to have a profound effect on the New Zealand economy, with forestry being significantly affected.

All subsidies were removed as the first step in moving from a heavily regulated economy to a market-driven economy, in order to balance government's spending with its income. Further major structural reforms included:

· sale of many state-owned business, including the State's planted forests - which made up about 54% of the total planted resource;

· de-regulation of financial markets, allowing free movement of funds into and out of the country;

· removal of price protection, subsidies, and barriers to trade;

· restructuring of the taxation system; and

· clear demarcation of social versus economic objectives.

The result of this has been a significant change in the focus of all business sectors, including the forestry sector. In particular, businesses now focus on activities which generate genuine profits, not tax leverage.

In the forest sector, the restructuring of the economy, including the sale of state-owned planted forest, coincided with a substantial expansion of the available harvest as a result of planting in the late 1960s and early 1970s.

The expanded harvest has moved the focus of the forestry sector from domestic markets to international ones, as shown below:

Year

Total Planted Forest Area (ha)

Percentage Privately Owned

Total Cut (m3 x 1000)

Percentage Exported

1985

1,095,000

48

9,626

35

1987

1,154,000

48

9,613

30

1990

1,261,000

52

11,744

46

1993

1,328,000

80

14,937

59

1996

1,559,000

94

16,964

60

The focus today is on export markets. Planted forests supply over 99% of the total cut. The result is no reliance on natural forest for produce other than speciality timbers, and planted forests creating a substantial exportable surplus.

The freeing up of financial markets and the expanding cut has resulted in other structural changes. The most significant policy change was the dis-establishment of the New Zealand Forest Service in 1987. The component parts of this government department were principally split three ways:

· protection of natural forest became the responsibility of the new Department of Conservation;

· government policy, training and research became the responsibility of the new Ministry of Forestry;

· planted forests were transferred to a State Owned Enterprise charged with making a commercial return from them.

Since then, research and training has been removed from the Ministry of Forestry, with research becoming a Crown Research Institute (effectively a government-owned company with commercial and scientific objectives), and the planted forests have been sold to the private sector.

Several of the largest international forest growing and processing companies are now actively involved in New Zealand. The inflow of investment has seen further expansion of the planted estate, but processing investment has failed to keep pace with the rising harvest.

Harvest rates are projected to rise further, as is investment in processing. The table below shows, however, that in the short term at least, the trend of increasing export of raw logs will continue, or at least will not decline.

Year

Total Harvest (m3 x 1,000)

Volume of logs exported (m3 x 1,000)

Percentage processed onshore

1980

9,911

1,247

87.4

1985

9,626

360

96.3

1990

11,744

2,170

81.5

1993

14,937

4,734

68.3

1996

16,964

5,640

66.7

2000*

20,000

6,000

70.0

2010*

28,725

8,500

70.0

* - projected

Current Legislative Framework

The present legislative philosophy in New Zealand is to move away from prescriptive central government controls to a permissive, self regulatory focus with enforcement and abatement action where appropriate.

Key legislation affecting the sector includes:

Resource Management Act (1991)

- with the objective of sustainable management of the life giving resources of air, water, soil, and ecosystems. The Act takes an holistic approach to the management of natural and physical resources. Sustainable management is defined in the Act as: "Managing the use, development, protection of natural and physical resources in a way or at a rate, which enables people and communities to provide for their social, economic, and cultural well being and for their health and safety while:

a) Sustaining the potential of natural and physical resources (excluding minerals) to meet the reasonably foreseeable needs of future generations; and

b) Safeguarding the life supporting capacity of air, water, soil and ecosystems; and

c) Avoiding, remedying or mitigating any adverse effects on the environment."

The focus of the Act is to control effects and not to control activitiesper se. Thus there is a considerable importance placed on measurable environmental indicators such as water quality, soil retention, air quality and the like.

This has significant implications for both forest growing and processing, which are treated equally with other sectors under the Act in terms of their effects. Forest establishment, management and harvesting must comply with the Act in the same way as any industrial process.

·Health & Safety in Employment Act (1993) - requiring all employers to take all practicable precautions to ensure the health and safety of their workers.

The 1993 Amendments to the Forests Act 1949 - requiring all management of natural forest to be under the auspices of a sustainable management plan or permit, granted by the Secretary of Forestry. The Act defines sustainable management of natural forest as: "the management of an area of indigenous forest land in a way that maintains the ability of the forest growing on that land to continue to provide a full range of products and amenities in perpetuity while retaining the forest's natural values".

This provision allows for the retention of forests in their present extent and condition and ultimately the enhancement of natural forest values, while still permitting a small but sustainable harvest of wood. As New Zealand was naturally a forested country, the protection of forest values is vital to the conservation of biological diversity (particularly the significant number of threatened native birds, reptiles and insects) and to the protection of natural landscapes.

There are currently two exceptions to the requirements of this Act, which while controversial in New Zealand, are insignificant on a global level. The first of these is some forest areas granted to indigenous people to develop an economic base; and the second is an area of government-owned forest. The company managing the government-owned forest is not required to abide by the Act, but instead must have its management proposals audited by the Parliamentary Commissioner for the Environment. This audit process is independent of both the company and the government.

There are however moves currently aimed at bringing these last two exceptions under the auspices of the Forests Act.

Institutional Structure

Four key central government agencies have a role in the management and protection of natural forests in New Zealand. The responsibilities of each are outlined below.

1.Ministry of Forestry - The Ministry is responsible for border control to ensure agencies injurious to both the planted forests and the natural forest are prevented from entering New Zealand. Should such an unwanted pest enter the country, the Ministry is responsible for any control action that is required. The recent arrival of the White Spotted Tussock Moth has seen the Ministry carry out a large scale control programme with the intention of eliminating the pest due to the threat it poses to both forests (planted and natural) and to the agricultural and horticultural sectors. The second important area of responsibility of the Ministry is the approval of sustainable yield plans and permits as described above.

2.Department of Conservation - This Department, established in 1987, is responsible for the management of all government-owned natural areas (which total about one third of New Zealand's land area). In addition it is responsible for advocating for the protection of natural assets on land not in government ownership. Thus for example they have input into the development of sustainable management plans for areas of natural forest, which as described above, the Ministry of Forestry must approve.

3.Ministry for the Environment - The Ministry for the Environment arose from the recognition that government needed an agency that was not directly involved in the management of resources to oversee environmental administration. This Ministry is responsible for the administration of the Resource Management Act, which as previously described, is the central piece of legislation for environmental protection and management in New Zealand.

4.Parliamentary Commissioner for the Environment - Created as an independent role, the Commission is able to investigate and report on any aspect of environmental management in New Zealand. As such it can provide an audit role for government environmental agencies, and is able to criticise and make recommendations on any matter it wishes. Its independence is vital to it being able to perform its functions on behalf of the people of New Zealand.

In addition to these central government agencies, New Zealand has an Environment Court which is responsible for making decisions on environment related matters. The majority of its work relates to planning issues involving the use and development or protection of natural resources.

The Future to 2010

Driving Forces

Key drivers of the forestry sector in New Zealand over the period to 2010 will include:

· Continuing rise in harvested volumes from planted forests. This is projected to reach 28 million cubic metres per year by 2010, assuming ongoing new planting of 50,000 hectares per year. These volumes will increase the demand for capital investment for processing.

· Increased demands on internal infrastructure as the forestry sector becomes the largest export earner.

· Obligations to meet international agreements on greenhouse gas emissions and climate change.

Key Constraints for the Sector

For New Zealand, the major constraints to maximising the potential for the forestry sector to contribute to economic development and the well being of the community, are likely to emanate from outside the country. These include:

· Failure to achieve international market place recognition that New Zealand's dichotomous forest management system, where natural forests are protected, and wood fibre is produced in plantations, does in fact constitute sustainable forest management, and does protect biodiversity.

· The escalating need for capital to process the increasing wood harvest from plantations. If this investment is not achieved, harvested volumes will continue to rise to beyond 30 million cubic metres by 2025, but economic contribution will not be maximised.

· Distraction of central government from its current course of a deregulated, unsubsidised, low inflation, stable political and economic environment.

· Offshore interpretation of New Zealand as a destination for investment to maximise potential returns from processing. This is very dependent upon continued control of inflation (currently constrained between 0-3%); continuing deregulation of finance, transport and labour markets; and continued belief in the free market economy.

· Failure to develop the necessary infrastructural assets required to capture the benefits offered by a large, sustainable wood harvest. Particular weaknesses are apparent in transport infrastructure in some regions, and energy production for large scale processing. While this is largely a matter to be resolved by the private sector, the appropriate investment climate must be created by central government in order for it to happen.

· Trade and non-tariff barriers for New Zealand's exported forest products, with particular problems of recognition through various international certification of forest product protocols, of the role and management of planted forests. In addition, the attitude of trading partners to protectionism could impact significantly, given the need to export the majority of forest production.

New Zealand - Summary

The New Zealand forest industry is unique in that it is focused on the management of introduced species, especially the softwood Pinus radiata.

The natural forest estate, covering a quarter of the land area, is almost entirely protected by statute, and those few areas in which harvesting is permitted must conform to very tight, government controlled management plans to ensure that any timber production is sustainable, and does not adversely affect other forest values.

Production from the forest industry is dominated by exports, with the local market being fully satisfied. Thus, those factors influencing international trade in forest products will have considerable bearing on the outcome for New Zealand.

The challenge for the New Zealand government over the next decade and further is to work through international issues such as non-tariff barriers, climate change, and forest certification to ensure that New Zealand's unique position is recognised.